BAE Systems Investigation May Impact Armor Holdings Purchase

BAE Systems (BAESY.PK) has officially acknowledge a formal DOJ investigation into the company'sv"business concerning the Kingdom of Saudi Arabia."

Although this comes as absolutely no surprise, the assessment of the DOJ's impact on BAE's acquisition of Armor Holdings' (AH) are varied to this point. Some reports suggest the investigation will have no impact on the HSR review process, while others indicate the deal may be compromised by the DOJ's actions. As noted previously, this publication believes that some connection between the merger review and the business investigation must be acknowledge given the magnitude of the combination. It would be irresponsible to suggest that one is mutually exclusive of the other, even at the most marginal of levels.

In other words, there is a very real chance that a second request will be issued in this deal given the combination of potential competition issue and the unrelated controversy currently surrounding BAE. This has been an extremely complex situation from day one and it is difficult to believe that the HSR process will actually simplify the merger process. In fact, it would be somewhat perplexing if the DOJ did not use the HSR review to slow the deal in light of the CFIUS non-action in the case.

While it is entirely possible that BAE will be able to slip this deal past the CFIUS and the DOJ, the overall situation suggests otherwise. Again, the CFIUS clearance greatly improved the odds of a successful deal completion (+/- 75%), the DOJ simply can not be discounted as a significant obstacle to both timing and completion of the merger.

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